- By CA. Khushboo Ganatra, Rajkot

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5 - By CA. Khushboo Ganatra, Rajkot

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7 - By CA. Kalpesh Doshi, Rajkot

8 Notification : Revised Rate of Stipend for Articled Assistants In a latest move to serve the cause of our students, the Institute has decided with immediate effect (i.e. 23 January 2015) to double the stipend rates for each of the year payable to the articled assistants pursuing CharteredAccountancy Course. A notification issued in this regard to revise the Regulation 48 of the Chartered Accountants Regulations, 1988, is available on the website of the ICAI at the link The stipend rates so revised are as follows: HUMOUR BY ORDER

9 AUDIT OF ADVANCES Banking industry is a backbone of Indian Economy. Today, various types of loans and advances are available to borrowers. The variety is so large that the choice available to borrowers has become difficult for bankers to manage and auditors find it challenging while carrying out audit of Advances. When you consider ever increasing figure of Non-Performing Assets (NPAs) in terms of percentage of advances as well as in real terms, we understand how public money is at stake. Restructuring is another grey area.it is being done on assumptions rather than projections based on facts. Under the new Reserve Bank of India Rules which are going to be effective from April 2015, banks have to classify an account as sub-standard as soon as it is restructured and set aside more funds as provision. Probably, this may compel bankers to show real earnings. 'Advances' is a major item on the Asset side of Balance Sheet. The real meaning of Advance is lending money temporarily with an understanding to be returned/repaid within a period of time with interest. The other meaning of word advance is to help progress. This clearly indicates that utilization of funds as advanced by bank must be for business purposes only and repayment of the same has to be timely with interest. Needless to say, the progress in business is expected. To begin with the audit of advances, the auditors should see very carefully the composition of business of the branch as well as composition of various types of advances. This is a beginning of audit plan of advances so as to select appropriate sample. Sample selection has to be proper to cover total advances and do not miss the instructions given in closing circular. Considering the limited time available for bank branch audit Auditors must consider following questions and answers there to: 1. What is to be planned in audit of Advances? a. Time Decide the areas of checking which can be tackled simultaneously. b. Manpower Optimum utilization of available manpower resources. c. Documents Paper Management for our own safety and Peer Review requirements. d. Sample size Proper sample to be selected to have meaningful representative data. e. Review procedure By own internal sources, staff or partner. This will help in minimizing the risk before reporting. f. Use of checklist to cover all areas in proper sequence. Prepare your own checklist. 2. What is the process flow of advances? a. Proposal b. Pre sanction scrutiny of submissions c. Primary sanction d. Receiving all necessary papers duly filled in e. Analyzing all submissions f. Fulfillment of conditions as per sanction letter must be 100% g. Disbursement Control over funds is shifted h. Monitoring of accounts, papers and funds i. Post sanction supervision This must be consistent and timely j. Review/Renewal Always before due date k. Follow-up Verify whether branch officials regularly visit, interact and do necessary paper work w.r.t. borrowers account

10 l. Verification of end use The purpose for which advance is granted and used for m. Classification of account Standard, Sub-Standard, Doubtful, loss asset, etc. n. Income recognition and provisioning Normally done at H.O. o. Proper reporting in L.F.A.R. 3. What are the important items to be checked? a. Borrower's name Authenticity of identity b. Account ID Should not be multiple c. Constitution Basic document like Memorandum and Articles of Association, Partnership Deed, etc. d. Security details and documents Includes latest valuation and clearance of title e. CERSAI Registrations, R.O.C. and other compliances if any f. Applicable business licenses and its validity g. Legal opinions h. Compare everything with credit policy of the bank, Accounting policies, Closing Circular of the Bank, RBI Circulars and ICAI guidance notes. i. Verify process of scrutiny of loan application j. Critical examination of audited financials of borrowers and guarantors Always confirm that full set of document is on record. For e.g. Directors Report, Auditors Report with Annexures, Report under Companies Act including CARO, etc. Tax Audit Report with Annexures, etc. k. Working of review of working capital limit v/s all existing loans l. Compare sanction letter with papers submitted and actual account operations m. Confirm 100% fulfillment of terms and conditions. n. Check for any deviations from sanctioned terms, applicability of penal interest and ratification from higher authorities. 4. Which are the critical accounts to be checked? a. Restructured b. Always temporarily overdrawn (TOD) or enjoying Adhoc limits c. Overdue for Review/Renewal d. Accounts exceeding Drawing Power limit e. Accounts with delayed or non-submission of stock/debtors statements f. Accounts with pending Insurance Policies g. Accounts with frequentcheque returns To sum up concentrate on following FOUR things: 1. Documentation It must be 100% covering all terms and conditions as per sanction letter 2. Operations Check debits and credits, confirm that account is not overdrawn frequently. Particularly, check the end use i.e. payments are made to creditors and there is no diversion of funds. 3. Security Primary and Collateral. Main dependence should not be on collateral Security. 4. Authority Always check authority of the branch manager. What's really required is own involvement of the signing Auditor. He must read thoroughly the draft report before discussing the same with branch manager. He must possess total knowledge of provisions related to advances as per RBI Circulars and closing circular of the bank. He should also consider the disclaimers suggested by ICAI in its guidance notes appropriately. - By CA. Uday Sathaye, Mumbai uday@gokhalesathe.in

11 LONG FORM AUDIT REPORT Long Form Audit Report is a tool to the auditors to keep the Bank Management informed about the matters important for their affairs, although which are not directly relevant or material for the purposes of the audit. In the course of audit of banks and their branches, auditors often come across matters, which, though not directly relevant or material for the purpose of their main audit reports, are nevertheless considered important enough to be communicated to the bank management. In such circumstances, the auditors, in addition to submitting their main audit reports in accordance with the requirements of the applicable laws, also submit a separate report to the management, which is usually termed as Long Form Audit Report (LFAR). Considering the utility of LFARs from the viewpoint of bank managements, the Reserve Bank of India (RBI) directed all public sector banks in 1985 to get LFARs from their auditors. In case of central offices and controlling offices of banks, the requirement to get LFARs was made applicable with effect from the financial year In the case of audits of branches such banks, the requirement for submission of LFAR was made applicable with effect from the Financial Year The format of LFAR as devised by RBI in 1985 revised in and FAQ About LFAR 1). What is the difference between the main report and Long Form Audit Report (LFAR)? Ans.The main report is required to be submitted as per the requirements of Banking Regulation Act and other applicable laws, while LFAR is a separate report to be submitted to the Management which will consist the matters which are not relevant or material for the purpose of main audit, however, they are important enough to be communicated to the Management. 2). What is difference between formats of LFAR for branches and LFAR in respect of ZO/HO Ans. The LFAR for the branches is in the form of questionnaire, whereas LFAR in respect of ZO/HO are in narrative form. In LFAR of ZO/HO, the auditor may include any other important matters in LFAR which he feels necessary to be included in addition to the standard matters mentioned in the LFAR format relating to ZO/HO. 3). whether main report can be substituted by LFAR? Ans. The main audit report and LFAR are two separate reports. In all cases, matters covering the statutory responsibilities of the auditors should be dealt with in the main report, and in this regard, the LFAR cannot in any way be a substitute for the main report. However, the matters included in the main report may be elaborated in the LFAR. Similarly, while framing his main report, the auditor should consider, wherever practicable, the significance of various comments in his LFAR. It may, however be emphasized that the main report should be self-contained document and should not make any reference to the LFAR. 4). Whether auditor should compile the information required for LFAR? Ans. The responsibility of compiling information/statements required for LFAR rests with the branch/bank concerned and not with the auditor. 5).Whether submission of main report be delayed in case LFAR is pending completion? Ans. As far as possible, both Main Report and LFAR should be submitted simultaneously. Submission of main report should not be delayed merely because LFAR is pending completion. 6).How the auditor should plan his audit programme for main report and LFAR? Ans. In Designing his audit programme, the auditor should take into consideration the requirements of the LFAR and, accordingly, he should so plan his audit work as would enable him to submit the LFAR expeditiously.

12 To the extent practicable, the work relating to preparation of LFARs should be carried out simultaneously with that for the main report. This would enable the auditor to appreciate and consider the effect of various matters to be reported in his LFAR on his main audit report. 7) To whom LFAR be addressed in case of Branches and H.O./ Z.O.? Ans. LFAR pertaining to the Bank Branches is to be addressed to the Chairman of the Bank concerned with a copy thereof to the Statutory Auditors. LFAR of the Banks is to be addressed by the Statutory Auditors to the Chairman of the Bank Concerned and a copy thereof is to be forwarded to the designated office of the Reserve Bank of India. Important points about LFAR Study the LFAR Questionnaire thoroughly Plan the LFAR work along with the statutory audit right from day one Complete & submit the Main Audit Report as well as the LFAR simultaneously There should be no vague/ general comments wherever possible elaborate i.e. the answer should not be only Yes/ No/ Not Applicable Give instance of shortcomings/ weaknesses in the LFAR Do not make the current year's LFAR a replica of the previous year's LFAR The branch LFAR should be addressed to the Bank's Chairman and a copy thereof sent to the Central Statutory Auditor The LFAR should be sufficiently detailed and quantified so that it can be expeditiously consolidated by the bank. An Illustrative list of data / documents which is to be collected by the auditor from the branch for the purpose of compiling LFAR 1) Previous year audit report/ LFAR/ Tax Audit Report/ Inspection Report of branch/ Concurrent Audit Report/ Compliances there of 2) Cash retention limit certificate from Branch Head 3) Excess Cash report sent to controlling authority 4) Copy of Insurance policy for cash on hand and cash in transit if insurance policy is taken at branch level otherwise certificate from the branch head that global insurance is taken at H.O. Level 5) Key register showing detail of keys and key holder for verification of joint custody of cash 6) Cash verification register 7) Bank balance conformation certificate if branch maintain bank account with other bank 8) Bank reconciliation statement, if any 9) Special attention is required to be given in reconciliation statement regarding 10) Cash transaction remaining unreported 11) Revenue items requiring adjustment/ write off 12) Old outstanding balances remaining unexplained/ unadjusted 13) If branch held investment on behalf of HO or other office original investment certificate/ copy of DEMAT A/c for physical verification 14) Dividend warrant/ investment warrant for investment 15) Recognition of income on investment in books of accounts 16) Verify maturity date of investment and matured or overdue investment which has not been enchased. 17) List of large investment. 18) List of large advances i.e. those in respect of which the outstanding amount is in excess of 5% of the aggregate advances of the Branch or Rs.2.00 crores whichever is less duly certified by the Branch Manager. 19) List of renewal proposals pending at Branch Level at the end of the year duly confirmed by the Branch Manager. 20) A copy of the letter from Head Office regarding Sanction limit of the Branch Manager. 21) List of proposals sanctioned during the year.

13 22) List of cases where registration of creation of charge with Registrar of Companies pending at the end of the year. 23) List of cases where the prescribed period of 30 days for registration of creation of charge is over as at the end of the year. 24) List of cases where search reports obtained from professionals for loans sanctioned to various companies. 25) List of cases where the Branch has not obtained acknowledgement of Debt (AOD) / Balance Confirmation letters at the end of the year. 26) List of cases where the Branch has not obtained stock/book debts statements at the end of the year. 27) List of cases where the stock audit is mandatorily required to be carried out. 28) Note down any adverse qualifications in such stock audit reports and a copy of the portion of such qualified reports as to which contains the qualifications. 29) A certificate from the Branch Manager for inspection or physical verification of securities charged to the Bank. 30) A statement from the Branch Head regarding cases of inspection due as on March 31st and inspection actually carried out during the year. 31) List of cases where insurance copies are yet to be received at the end of the year. 32) A statement of credit card dues at the end of the year. 33) List of cases where authorized legal actions for recovery of advances are pending at the end of the year. 34) A list of cases where legal action for recovery of advances or recalling of advances was authorized by the Board or local board. 35) List of cases where the branch has obtained valuation report from approved valuers for the Fixed Assets charged to the Bank in respect of Non-performing Assets and any pending list at the end of the year. Fixed Assets charged to the Bank in respect of Non-performing Assets and any pending list at the end of the year. 36) Confirmation from the Branch Manager that they have physically verified the stationery and stamps on hand at the end of the year. 37) List of missing/lost items of such stationery at the end of the year duly certified by the Branch Head. 38) Copy of the Exception report for sundry assets and suspense accounts. 39) List of revenue and capital items pending in suspense account. 40) Copy of Exception report from Bank for inoperative accounts in deposits. 41) Obtain ledger extracts of days subsequent to the date of balance sheet. 42) Obtain the exception report from the branch for matured term deposits at the end of the year. 43) A certificate from the Branch Head in the prescribed format for old outstanding items pending for 3 years or more in respect of Bills payable, sundry deposits etc. 44) Obtain representation from the Branch Management that all contingent liabilities have been disclosed and that the disclosed contingent liabilities do not include any contingencies which are likely to result in a loss and which therefore require consequent adjustment of assets and liabilities. 45) List of legal disputes for chance of arising of contingent liabilities. 46) A copy of the instructions of the controlling authorities of the Bank regarding charging of interest on Non-performing Assets. 47) List of major items pending for reconciliation under Inter-Branch Accounts. 48) List of all fraud cases reported to RBI. 49) Brief history of each fraud discovered during the year; 50) A certificate from the Branch Head for carrying out physical verification of the Fixed Assets at the end of the year. 51) Management representation letters. 52) List of advances which have been updated from NPA to standard during year and the reason for the same. 53) A list of time-barred decrees duly confirmed by the Branch Manager. 54) Copy of the closing circular issued by the Head office; - By CA. Sharad Anada, Rajkot sharadanada@gmail.com

14 In 21st century, everyone wish to live longer but due to very irregular lifestyle and lot of commitments will not allowed us to live as per our wish. The aim of life is to have a quality and happiness in our daily routine but the aim is never achieved because of un-planned life style. We are living like a machine and as a rule of engineering machine is required service. Science has made revolution in a terms of jet-way thinking but our biological system will live as per nature's rule. Our life is depends on speech, behavior, thinking and attitudes. There are 4 quotients in our life like physical, intellectual, emotional and spiritual. We follow first 2 but difficult to follow last 2. In our life money is more important than mind. So, power is trigger by money than mind. If you want to remain healthy you have to follow following rules. 1. In the morning, you wake up and thanks to God first for giving better yesterday. 2. Listen Indian classical mood as per Ragas which creates enormous positive energy in body minutes Asana minutes meditation minutes walking. 6. Morning breakfast should be light in calorie and less in amount. 7. Read every positive notes in newspaper, avoid negative notes. 8. Bath with preferably cold water or lukewarm water. 9. Go to office and park your vehicle at least 10 minute distance from the place where you work, if possible. 10. Take medium calorie lunch with full of salad and plenty of water. 11. Evening tea is either black or without sugar. 12. At 8 PM light dinner with milk PM one fruit and off the bed. Cardinal rules at working place : 1. Keep yourself fit physically, mentally and emotionally. 2. Don't get angry so often. 3. Avoid negative communications with others. 4. Have a light walk for 5 to 7 minutes every 4 hourly. 5. Prefer healthy snacks. 6. Respect and wishes to everyone in organization. 7. Create peaceful environment and behave in a humorous way. Cardinal rules at home : LIVE LONG. 1. Spend qualitative time with family at least for 1 hour. 2. Discuss family issues in balance way. 3. Create peaceful and happy environment at home. 4. Visit to cultured family or preparations of next generation. 5. Discuss children issue in presence of themselves. 6. Respect to elders and have prayer daily with everyone. By - Dr. Kamal Parikh Medical Director-Sterling Hospital, Rajkot

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